National income slumps at fastest rate since GFC

The slump in prices of Australia’s mining exports has cut national income at the fastest pace since the global financial crisis or the recession of the early 1990s, jeopardising the Gillard government’s surplus and threatening to drive up unemployment.

Real gross domestic product, which measures the amount of goods and services produced in the economy, grew 0.5 per cent in the three months ended September 30, the smallest gain in six quarters.

Real gross domestic income – the purchasing power of what the economy produces – fell 0.4 per cent in the quarter. Treasurer
Wayne Swan
blamed this on a “pretty savage" slump in the terms of trade, which was pushed down by lower prices for iron ore, coal, and other commodities.

Excluding the global turmoil in 2009, income fell for the first time in annual terms since late 1991, the report showed. The figure is crucial because nominal growth determines wages and tax revenue.

Former federal Treasury economist
Geoff Carmody
said the figures confirm the economy was in a recession during the first nine months of 2012 based on net income per person.

Export income plunges 4pc in quarter

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Income from exports, as measured by the terms of trade, plunged 4 per cent in the September quarter. Six weeks ago, Treasury forecast an 8 per cent drop for the full year.

Mr Swan acknowledged for the first time that nominal economic growth was weaker than expected.

“That’s a challenge for revenue . . . [but] I think it is important as we go forward to acknowledge we’re simply dealing with one quarter’s figures and it’s something of a mistake to extrapolate that out to a full year," he said.

Economists at banks including Westpac, JPMorgan and RBC Capital said the economy was slipping below its long-term rate of growth, or trend rate, after expanding 0.5 per cent in the September quarter, and 3.1 per cent from a year earlier.

Growth needs to average more than 0.8 per cent over the next three quarters to reach Treasury’s 3 per cent forecast in the October mid-year review.

“None of us believes the government is going to meet this surplus fantasy," JPMorgan economist Stephen Walters said.

Shadow treasurer
Joe Hockey
said the economy would need a “miracle recovery" over the next few quarters if growth were to meet the government’s expectations. “The economy is heading in the wrong direction, and the government has no plan to turn it around," he said in Sydney.

Growth to fall to 2.8PC next year: Analysts

An Australian Business Economists survey showed analysts expect GDP growth to fall to 2.8 per cent in 2013. Unemployment could surge to 6.4 per cent.

Mr Carmody, writing in The Australian Financial Review today, says the latest figures show Australia’s per capita income “cake" is shrinking.

“Aspirations for rising real incomes, or income redistribution (for example, via new tax initiatives in the next budget to cover Gonski and NDIS reforms), cannot be resolved without distributional conflicts," he writes.

Real net national disposable income per person, the measure cited by Mr Carmody, fell 1.8 per cent in the September quarter from a year earlier, yesterday’s report showed.

Nominal GDP growth has slumped to an annual pace of 1.9 per cent. A year earlier, nominal GDP was expanding 6.5 per cent, and two years ago it surged 10.3 per cent with commodity prices.

Barring a fall during the 2009 global recession, it is the lowest nominal growth since Australia was last in recession more than two decades ago.

The government in October forecast nominal growth of 4 per cent this financial year.

“It’s not how many boxes you ship that matters; it’s how many you ship and get paid for them," Deutsche Bank economist Adam Boyton said.

Treasury forecasts ‘almost impossible to realise’

“That combination, as far as the economy is concerned, is looking extremely sick – and it means it is almost economically impossible to realise Treasury’s 4 per cent nominal GDP growth forecast for 2012-13 off the back of today’s data," he said.

Deputy Reserve Bank governor
Philip Lowe
last night warned that 20 years of good economic growth and rising asset prices had raised expectations of what was normal.

“Many in the community are a little disappointed that these higher expectations are not being met fully," he said.

“I suspect that this is one factor that explains why the public mood has been a bit flat over recent times, despite many observers outside our country viewing the Australian economy with some envy."

Positive elements in yesterday’s GDP report included record business investment, gains in productivity, and a rise in manufacturing, despite the high dollar.

“The non-mining economy remains weak but today’s data provides some tentative support for the view that the alternative sources of growth are there," said Commonwealth Bank economist Michael Blythe. He cited a 3.7 per cent rise in investment in new houses and apartments, an industry the central bank hopes to spur with lower interest rates.

Mr Swan said the figures showed government spending cuts were being “more than ­offset" by growth in the private sector.

The economy was mixed across Australia. Western Australia continued to drive most of the nation’s growth in the September quarter. Queensland, which is undergoing sharp public spending cutbacks, was the biggest drag on national GDP.